Wednesday, September 15, 2010

The Rise of Chash Advance Institutions

A few years ago before Lehman brothers collapsed I happened a chance meeting with a black entrepreneur from Atlanta. He told me he was applying for a license to give out pay day loans in Canada, Toronto to be more specific, he said the business looks set to grow in the future. I asked him does he have, he said he had raised finance in various ways from wealthy blacks in Atlanta and half from one of the largest financial institutions in America, a top tier bank and Fortune 500 corporation. I asked him to introduce his connections, he would not, I understand, but he promised me a good position.

Needless to say he did not get the license, I warned him he is black, blacks can not be seen to be progressing outside the realms of singing, sports in order to fulfill the agenda, a black businessman in his own right though having backing of a Fortune 500 bank, an intellectual black with original ideas, not in Canada, maybe in Atlanta, it will not be supported by the simple granting of a license. These sort of business’s have grown very fast since then, none owned by a black.

The phenomenon of pay day loans began well before Lehman brothers collapsed, banks where already not lending money to many people, the middle class was already in a recession in North America and had probably been in a downward spiral for many years. Pay day loans fulfilled a gap in the market, a gap that traditional bankers could not fill because of the way they are run, though conventional bankers would easily buy shares in these establishments.

The role they fulfill in times like this is that we must admit that the middle class is having a torrid time in the last two decades and things have got worse, for example 60% of Canadians have an existence defined by a pay check to pay check syndrome, they do not have the capacity to save for the future. This is the case in USA, Australia, and Europe, things are not okay, somebody has to stop the rot in the middle class, obviously the establishment in the West seems hell bent on destroying this sector to satisfy the elite who run the society.

One gets such institutions as Anyday PayDay an online service in Australia, that points out the advantages of cash advances. You do not have to go to a pawn shop, your collateral is your next pay check. You do not need a credit card, many people out there now have poor credit scores, with employment as high as it is and underemployment even higher people can not turn to banks. Those who criticize cash advances seem not to come up with another solution, why are they generating so much business, it is because there is no other alternative, it is like asking the world to stop using petroleum but one comes up with no solution.

To lend somebody $1 000 cash for three days and keep a record of that takes as much paper work as lending somebody $1 000 000, 3% is $30 000. That $30 000 certainly covers all administration costs as well as lending that money out. Collecting $30 for the whole year will hardly cover the paper or the ink for the paper work, that is why interest seems so high, you are paying say $30 on $1 000 for three days, smaller loans require the same amount of administration, the same amount of precise record keeping, harsh but a fair assessment. Keeping in mind the costs of setting up the loan, interest will be a lot lower unless of course one defaults.

One hopes that these cash advance facilities keep records, and in time lower the costs of borrowing to clients who have a successful track record of paying the money on time, and then maybe these people will be given longer times to pay back the cash, maybe instead of next pay check, they are given three pay checks to pay for the loan once they prove to be reliable clients.

Cash advance establishments are there to fill a gap, nobody else can fill it. Instead of worrying about these institutions people should be worried about fixing the economy so that people have good paying jobs and do not exist from pay check to pay check.Bhekuzulu Khumalo